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Full interview with Daily Texan on Shared Services and UT’s declining funding

Full Interview with Kevin Sharifi (Daily Texan).

KS: Regarding G.R. 14 (S) 12: Has this resolution been passed just within GSA or has it also been recognized by UT administrators?

AJT: The resolution was passed in the GSA April 30th of this year. I don’t know whether it has been or will be recognized by the administration. We’ve been hearing a lot from Mr. Hegarty about how Shared Services is supported by the UT campus community. I feel that if this is the case then resolutions should be passed in its favor by the Shared Governance bodies of the University.

KS: What is the current status of Shared Services implementation at UT-Austin? Will it still eliminate 500 jobs (and is this an exact number? It seems a bit round)?

AJT: The number given from the Accenture documents released in February following the faculty council resolution is 525. No methodology has ever been presented as to how that number was arrived at. As I understand it the savings from the plan are still predicated on those job cuts, so unless they adjust the savings downwards, they’ll still have to cut those positions. There has been some hand-waving about increases in efficiency due to shared services (and the ERP which it is often confused with) – but it hasn’t been made clear how these “efficiencies” save money.

I’m very skeptical about the $30-40 million savings they claim to achieve by the plan.. If one divides each of the numbers in the range by the jobs ($30-40 million/500 jobs) we arrive at cutting 500 jobs paying $60-80 thousand per year. Recent data released through FOIA request to the Texas State Employees Union on annual salaries and layoffs at the University of Texas demonstrate that the mean salary of administrative staff is $55,762 with a standard deviation of $78,405. If we assume outliers are above $120,000 and we remove them, the mean is $48,033 with a standard deviation of $24,077.

If we take the more reasonable mean of $48,033, the yearly savings are approximately $24 million with a standard deviation of $12 million. To achieve a $30-40 million in savings would require cutting approximately 625-833 positions, not 500, assuming the adjusted mean of $48,033.

But it is entirely possible that the Plan entails cutting 500 jobs that are between $12,000 and $32,000 above the mean yearly salary ($60,000-$80,000 respectively). What has to be explained is why the elimination of jobs will mostly effect positions ranging between 0.5 and 1.5 standard deviations above the mean. Suffice it to say that there is an extreme lack of clarity in how job cutting will achieve the desired savings. Until we see how they arrive at these numbers we’re not going to know much for sure.

KS: What are your main frustrations regarding the way it’s being implemented and handled by the administration?

AJT: Well, they paid Accenture $1 million to help gather data for the Committee on Business Productivity, which consisted of 13 “business leaders”, and spent another $3 million or so on consulting fees. The chair of that committee was Stephen Rohleder who had expressed the opinion that UT should have shared services two years prior to the release of that report, and his company was paid to do research to make the recommendation. Mr. Hegarty appeared at an Accenture sponsored summit that same summer speaking as if shared services was a done deal before any campus dialogue had happened. Despite Mr. Rohleder’s previously held opinion, the CFO considered the recommendation an “independent review” when he was queried about this at the GSA.

Plain and simple, the campus dialogue about the budget problems and the potential “need” to implement shared services should have started before all this money was spent on Accenture. The decision to buy Workday, which is intimately linked to the shared services plan should not have been made last summer. They made a huge amount of important and substantial financial decisions without consulting anyone. Well, now they’re paying for it and having to backtrack on a lot of their plans, but we won’t be able to get that $4.1 million back.

Its unclear to me why the data from the CBP had not been released immediately. I was shocked to hear for the first year or so that Mr. Hegarty was not interested in these data. As far as I understand the $4.1 million paid to Accenture was just a waste.

There’s endless amounts of frustration regarding the shifting definition of “shared services” the administration has used to make the plan seem more feasible, and the ambiguous role of Accenture has played throughout. There are numerous problems with the way the plan has been messaged that suggest a sophisticated and embattled PR campaign rather than honest campus dialogue.

KS: By how much will implementation costs exceed the $4 million already paid to Accenture, and do you believe Accenture has handled this money honestly?

There’s not really anyway to know exactly what Accenture did with this money. Research on campus “work functions” seems to have been conducted, but for some reason it was withheld from the public until February of this year. The other $3 million or so was spent on consulting fees, but no one knows what that bought us.

Mr. Hegarty has recently claimed that the shared services draft plan from October of 2013 was written up by Accenture, a shift from his previous position. (Just anecdotally, I suspected this was the case the entire time, the reason being that announcing job cuts publicly is something private sector companies do to increase their share prices, it makes no sense that a public institution would do this- so I suspected the announcing of the job cuts was a force of habit from Accenture consultants). If that’s the case, then, no-they have not handled the money honestly, because Accenture wrote a draft plan that purposely underrepresented costs to make shared services look more feasible, as is well known by now.

In terms of your question about implementation costs, again we don’t really know. I and David Villarreal wrote a white paper on the issue where we reviewed the literature on shared services and Enterprise Resource Planning. Both have been found to run a high risk of cost overrun. In the business literature, one of the noted disadvantages of shared services is the initial investment cost (its main disadvantage compared to outsourcing). But any situation, like we initially had with Accenture, where the consulting firm is the same as the implementation firm is a sure-fire formula for disaster, especially when it is not clear that the consulting firm has any incentive to budget accurately, and they benefit from cost overrun.

From the December Regents meeting, shared services was supposed to cost $54 million with another $11 million of “contingency”. The estimated cost has been reduced dramatically (last I heard it was $3 million), presumably because it looks like they may not have an off-campus shared services center. But this all might be a smoke screen, I mean unless we really probe for what the costs are (like we did for the $4.1 million), there could be all sorts of auxiliary costs that aren’t counted.

The ERP is the real big cost. ERPs are not typically designed for Universities and require constant “customizations” to meet the institutional needs of the “federated” University structure (our white paper has a literature review on this topic). When new customizations are installed trouble-shooting follows, increasing the amount of money paid to outside programmers and consultants.

KS: Also, what do you think of University statements claiming UT is in a bad financial situation?

AJT: There’s a lot to say about this- I’ll try to be brief. Shared services is not a one off issue for the administration. There has been a “crisis” for the past 25 years whether or not state funding has increased or declined. But the PUF has boomed in recent years to $15.6 billion recovering drastically since it was hit by the financial crisis, and the amount of money from the AUF going to UT Austin consequently shot up. State appropriations have not had a “sustained decline” for 25 years. State funding started to dip down after the financial crisis, but now its recovering. And tuition revenue has been accelerating even as there was a brief stall in in-state tuition increases. If you put together tuition revenue, the AUF (to UT Austin) and state appropriations there has been, on average ,an increase in funding of $15.96 million per year from 2003 to 2013 (and this isn’t counting donations and funds from overhead costs). The overall revenue has increased from $1.76 billion in 2007, to $2.34 billion now (All of these numbers are adjusted for inflation to FY 2014).

The “crisis” is the unsustainable growth rate that is fueled by debt financing. A big one is building projects. Since the financial crisis we have invested millions in the CLA, the SAC, the Medical School, the Callaway House etc… How does introducing shared services solve the issue of over-bloated administrative expenses? It doesn’t, in fact it makes it worse. As has been well-known for a while (see Robert Ovetz’ dissertation), by handing more discretionary funds to upper administrators, the debt problem will only be exacerbated. This explains why revenue and sources of discretionary funding have been increasing, but that there is a perpetual “crisis” in the eyes of the administration- a crisis that will exist regardless of whether state appropriations are declining or increasing, or how many donations we receive, how much tuition increases etc..

We might also consider the fact that upper administrative and director salaries have increased since the financial crisis of 2008. In 2007 (if we adjust salaries for inflation to 2014) there were 97 non-professorial employees at UT making over $200,000-that amounted to a sum of $25.8 million going to those individuals. After 2008 there has been a consistent trend of cutting down, and in particular cutting COLA. Not for upper administration though. In 2013, there were 122 administrators and directors making over $200,000 for a sum total of $44.5 million. As of 2013, if we capped salaries of non-professorial employees at $200,000, we would save $19.5 million a year indefinitely and “in perpetuity” as they say. Any such options are of course off the table- for political reasons though, not for practical ones.

KS: Hegarty says UT’s contract with Accenture ended in February. Does this actually mean anything, or is it merely misleading rhetoric?

AJT: Its hard to say. After the contract “ended” with Accenture in February, Accenture consultants stayed on the shared services project team. I understand from the last faculty council meeting that Mr. Hegarty also announced that we would have no external consultants for our new shared services plan. Maybe they’ve actually backed down, but they’ve been so reticent concerning the functions that Accenture has actually performed, its always hard to interpret things like these, and one suspects that its more about PR than reality. Keep in mind that the administration already plans on buying the ERP Workday. The purchasing of the license was approved by the Regents but I don’t know if its been bought yet. ERPs like Workday require external consultants. Accenture is one of the primary Workday providers. Its possible they could go with Deloitte, however, but this is something they have refused to announce. So that’s up in the air, it’ll take some really good investigative journalism to figure that one out.